Analysis by an industry leader has examined how the type of borrower affects the likelihood of a mortgage default

A report issued earlier this week slamming the state and Federal governments’ housing policies has provoked a strong reaction from one industry spokesgroup, which says the recommendation that negative gearing me removed is ‘short-sighted’.

The Real Estate Institute of Australia (REIA)says it agrees with the Grattan Institute Renovating Housing Policyreport in that a major overhaul of housing policy in Australia is needed, but disagrees with what needs to be done.

“We strongly agree with the report’s recommendations to eliminate stamp duties, however it’s essential negative gearing be retained in its current form for the purpose of property investment,” says REIA president, Peter Bushby

“REIA has always supported negative gearing because it helps in the provision of rental accommodation. Negative gearing for property investment is complementary to the goals of the Government’s Housing Affordability Fund (HAF) in addressing the supply of rental accommodation.”

Bushby says that, to remove negative gearing would show that Australians ‘haven’t learnt anything from history’.

“When negative gearing was abolished in 1985 it had disastrous consequences for the property market and for people trying to rent. Rents rose 37% across Australia and by 57% in Sydney. Thankfully, negative gearing was reinstated in 1987. It is far too short-sighted to link investor interest in housing to negative gearing alone. Negative gearing is only one of a range of factors that contribute to the level of investment in property. Other factors include interest rates, availability and accessibility of finance, share market performance, the unemployment rate, housing supply and consumer confidence.”

He says the ‘myth’ that negative gearing is a plaything of the well-heeled also needs to be dispelled, claiming the majority of taxpayers with negatively geared property earn less than $80,000 per annum.

“Findings in the Renovating Housing Policy report are important and let’s hope they assist in kick-starting a debate on housing policy. With the new government, expectations that industry will be involved in finding workable solutions to these old issues are high.”

COMMENTS

by not so old broker23/10/2013 9:22:03 AM

I seem to remember when Keating removed negative gearing the rental market went into a tailspin, causing social disruption and hardship. Perhaps an unintended consequence, but certainly one that must be taken into account. The Grattan Institute seem to sit on their offices and pontificate - you need to look widely. It isn't theory, it is people's lives and planning for the future.

by Broker Tony23/10/2013 9:55:51 AM

It is about time there was a fundamental recognition that negative gearing is not a product that someone can invest in to reduce their tax. It is a genuine situation where an investor has made insufficient income to cover their costs and consequently incurred a loss. It is no different to running a business and over time the rent should increase and the property will eventually make a profit on which tax will be paid. If the earlier losses are due to depreciation claims then the eventual capital gain will be higher and tax will be paid then. At best negative gearing is a deferral of tax, a recognition of the realities of investment in geared assets and minor compensation for genuine losses incurred to assist put a roof over a tenants head. If you are negatively geared by $10k pa your tax refund on that will for most people be $3k-$4k at best ie you are genuinely losing $6k-$7k which will never be recovered except by capital gains which are also taxed. This is not a rort - it is a public service and should be recognised as such.

by Rosemary Johnston (PIAA)23/10/2013 10:36:30 AM

The Grattan Report raised some interesting issues. Negative gearing has almost become a de facto Government policy to provide rental accommodation for Australian's. NRAS has taken this into affordable and social housing as well.

Without negative gearing the Government would need to find millions of dollars to invest in housing to meet the shortfall and it simply does not have these funds.

Concurrently they need to create more self funded retirees as the number of tax payers decreases with retirement of the baby boomers. To create a significant impact on housing prices due to a flood of sales of unsustainable investment properties at this time would be difficult to imagine. Negative gearing will raise its head from time to time however post GFC it is difficult to imagine it being an affordable policy for an Australian Government.